Most Gulf central banks follow Fed and raise interest rates by 25bps | Reuters

Most Gulf central banks follow Fed and raise interest rates by 25bps | Reuters

Most Gulf central banks increased key interest rates on Wednesday after the U.S. Federal Reserve raised its target interest rate by a quarter of a percentage point, in line with expectations.

The Fed raised its rate by 25 basis points on Wednesday, its 10th consecutive increase since March 2022, but signalled it may pause further increases.

Oil and gas exporters of the Gulf tend to mirror the rate moves of the Fed as most regional currencies are pegged to the U.S. dollar.

The central banks of Saudi Arabia and the United Arab Emirates, the region's two largest economies, followed the Fed in increasing rates by 25 bps, as did Bahrain and Qatar.

The Saudi central bank, known as SAMA, increased its repo rate by 25 basis points to 5.75% and its reverse repo rate also by 25bps to 5.25%, it said in a statement, while the UAE central bank said it would raise the base rate on its Overnight Deposit Facility to 5.15% from 4.90%.

Bahrain raised all of its key interest rates by 25 bps, taking the one-week deposit facility rate to 6% from 5.75%.

Qatar increased its repo, lending and deposit rates by 25 bps to 5.75%, 6.0% and 5.5% respectively after initially releasing a statement maintaining rates; it later posted a new statement with the upwards revision to rates.

The impact of rising rates on regional credit growth and non-oil business activity has so far been limited, although those indicators would probably be a little stronger if rates were lower, says Justin Alexander, director of Khalij Economics.

"Another 25 bps won't make a big difference; the rates outlook is more important and it's looking like we might be near the peak," Alexander, also Gulf analyst at GlobalSource Partners, said.